Through this example, you will find below some basic analysis of a Real Estate Development.
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1) Subject:
Our example: funding for construction of a housing estate comprising 40 apartments and 2 shops for sale (off plan) in the Municipality of SB (downtown).
2) The Relevant Sector:
Points Analysis:
- The Good, the subject of the request for funding been "controlled" (Land acquired on Equity, and permit final budget)?
- The program is it relevant to the target audience?
- Its location is it attractive?
In our example:
- The land is equity financed and serves as a contribution to the project (450 KE 10% of total costs).
- PC (Building Permit) granted and served (the third party liability).
- good location in downtown SB close to all amenities and the Head Place.
- fast-growing sector where the need for housing and commercial space is important and the current offer inadequate.
- Prices (X € / m²) are attractive and will enable the rapid commercialization program (Range between XA and XB Euro).
- The benefits at a good level of standard air conditioning, fully equipped kitchens, bathrooms furnished, gated, spacious terraces ...
3) The Speakers:
Points Analysis: During the study
operation, it is imperative to validate the property operator:
- This operator is there a quality professional? Elements of Analysis: reputation, local market knowledge, membership of a professional body, and outstanding achievements completed, rating Bank of France ....
- Costs are they identified and validated?
- The companies approached for the work they are quality and they assure us of the good progress of the site?
In our example:
- Operation entrusted to an experienced professional (Group S were among the main promoters of the region) which has many references and a very good reputation (+ 10 000 units built)
Mr. H (manager of the CSVS) also has an important heritage property: surface net xxxxx KE
- Marketing provided locally by the developer.
- Consultation business is underway, the markets will be signed after obtaining a banking agreement (although budget costs identified and validated: the usual business of the Group T).
4) Financial analysis of the operation:
Indicators & financial criteria:
points of analysis: decomposition of the unwinding of the transaction of real estate:
- The cost = Cost promotion (land cost + construction cost + fees)
The financing of the operation of real estate development will be via :
- A contribution = contribution of the promoter in the operation (in cash or in kind, eg ground).
- Reservation = share of apartments sold. A low rate of bookings must involve a more consistent level of intake.
- Credit = credit support in place to enable the conduct of the promotion.
The share of the financing not covered by the contribution, credit and reservations (= deadlock) must be very low.
In our example:
Cost 4478 (100%) Contribution
450 (10%)
Reservations: 2200 (49%)
Credit : 1800 (40%)
IMPASSE: 28 (1%)
We see here the closure under good conditions of the transaction: the level of contribution and reservations will be sufficient to limit the gapping at a level insignificant (1% of cost).
Indicators of project value:
Points Analysis:
- Margin = Sales Price - Cost
- Bank Security Margin = Sales + FP. The higher this rate is high unless the financial risk will be high.
In our example:
Value Sales: 6000 KE
Less :
Sales commissions: KE 200
- Margin on Sales = 6000-4 = 478-200 K € 1,322 or 30% of expenditure (cost) and 22% of Sale Price.
- Bank Security = 1222 = 1672 + 450 K € (37% of total cost).
5) Warranty and conditions of the competitions set up:
Point Analysis on the Conditions Precedent to Credit Cover:
Justification of contributions to be invested in the transaction until full repayment of assistance granted by the Bank. Reason
-xx% firm reservations (with deposit checks from the notary).
Justification of administrative authorizations purged of all appeals.
Justification of contracts signed (company structure).
- Engagement of Mr. H (manager) to support any budget overruns.
In our example:
Credit Support: 1 800 KE over 12 months (completion of work)
Mortgage Guarantee + SPC Mr. H. The surface of MH can allow to cope with potential slippages (Heritage property (land) Mr. H xxxxx estimated K €).
Prerequisites Credit Cover
- Justification of inputs (land adjusted up to 450 K €).
-Justification of 49% firm bookings.
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